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Here’s What To Look For From The May CPI Report

May’s Consumer Price Index release is expected to show cooling headline inflation, though core inflation may remain sufficiently high that the Federal Reserve is unlikely to cut interest rates soon. Ultimately, the Fed is not expected to cut interest rates in June and to wait for more supportive data before potentially cutting interest rates later in the year.

May CPI Release Timing

May CPI data will be reported at 8:30 a.m. ET on Wednesday, June 12. Previous monthly figures for 2024 have seen 0.3% to 0.4% increases for both monthly headline and core inflation. Core inflation excludes food and energy price changes.

For May’s CPI figures nowcasts from the Cleveland Federal Reserve estimate that headline monthly inflation will be 0.08% and core inflation 0.3%. The subdued headline inflation estimate is due, in part, to cooling energy prices in May. The Fed tends to pay more attention to core inflation. Still, if the nowcast holds, the inflation data will be somewhat encouraging for policymakers after signs of accelerating inflation figures earlier in the year.

Underlying Inflation Data

In addition to attention paid to the overall inflation result, policymakers will watch trends in shelter costs closely. These carry a large weight in the index and industry benchmarks suggest that shelter costs have eased recently. Yet, that trend has not been reflected fully in recent CPI reports. If shelter costs were to see disinflation, that might create a path for cooling prices over the coming months.

Services prices will also garner attention. As the jobs market continues to perform relatively well, wages have also risen. For services where labor is a large component of pricing, rising wage costs are believed to have fueled inflation. The Atlanta Fed’s Wage Growth Tracker shows that wage growth is cooling as of their March 2024 report, and various services have cooled in recent CPI reports, too. However, the Fed continue to watch services pricing closely.

Overall, the Fed is looking for inflation to move to its 2% annual target. In the second half of 2023, the data was generally supportive of that trend. However, in early 2024, inflation showed signs of reaccelerating.

Strong Jobs Data

Fed Chair Jerome Powell recently signaled that a weakening jobs market could prompt the Fed to cut interest rates to avoid, or lessen the impact of, a recession. However, May saw another relatively robust jobs report. Nonfarm payroll employment grew by 272,000 positions, a higher rate of additions than the 12-month average. This apparent strength in employment implies that the Fed might be watching inflation figures more closely to justify any rate cut to the extent that jobs data is not considered a cause for concern.

What To Expect

May’s CPI report is expected to deliver reassurance that concerns about surging inflation earlier this year were overstated. However, it may also show that any path for inflation to reach the Fed’s 2% goal will still take some time.

The numbers are unlikely to prompt any immediate moves on interest rates from the Fed whose policymakers are expected to wait until late summer, or perhaps later, before any cuts to interest rates. Still, if CPI numbers remain somewhat encouraging over the coming months, as most expect, then we may be getting close to the first cut of this interest rate cycle.


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